FORM 10-QSB/A
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended: December 31, 1996
Commission File Number: 1-8662
PROACTIVE TECHNOLOGIES, INC.
(formerly KEYSTONE MEDICAL CORPORATION)
(Exact name of registrant as specified in its charter)
Delaware 23-2265039
(State of Incorporation) (I.R.S. Employer ID No.)
7118 Beech Ridge Trail,
Tallahassee, Florida 32312
(Address of principal executive offices) (Zip Code)
(904) 668-8500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that registrant
was to require such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __________ No ___X_____
Check whether the registrant filed all documents and reports required to
be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution
of securities under a plan confirmed by a court. Yes ___X_____ No _________
The number of shares outstanding of registrant's common stock, par value
$.04 per share, as of February 1, 1997 was 13,229,342.
Transitional Small Business Disclosure Format (Check one):Yes ________
No ___X____
PROACTIVE TECHNOLOGIES, INC.
Table of Contents
Page No.
PART I FINANCIAL INFORMATION
Item 1.(a) Introduction 3
Item 1.(b) Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance 4
December 31, 1996
Condensed Consolidated Statements of
Income for the Three Months and Six Months
Ended December 31, 1996 and 1995 5
Condensed Consolidated Statements of
Cash Flows for the Three Months and Six Months Ended
December 31, 1996 and 1995 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10
PART II OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE 13
EXHIBIT INDEX 14
Item 1.(a) Introduction
As previously reported on February 12, 1996, Proactive Technologies, Inc.
("PTE") acquired 100% of the issued and outstanding common stock of Capital
First Holdings, Inc. ("Capital First"). In connection with the preparation
and audit of PTE's financial statements for the fiscal year ending June 30,
1996, it was determined that such a transaction was a reverse acquisition, and
would be treated, for financial reporting purposes, as the acquisition of PTE
by Capital First. Under this treatment as a reverse acquisition, the
historical information is that of Capital First. Therefore, this Form 10-QSB
for the three months and six months ending December 31, 1996 contains
financial information for Capital First for the three months and six months
ending December 31, 1995 since comparisons to the three months and six months
ending December 31, 1995 reported in Form 10-QSB filed May 17, 1996
(conforming copy) filed on EDGAR on October 12, 1996) are not applicable.
On November 16, 1996, the Company and the original owners of the 82% of
QuinStone Industries, Inc. mutually decided to rescind its original agreement
whereby the Company acquired 82% of QuinStone Industries, Inc. in exchange for
750,000 newly issued shares of restricted common stock, together with a
registration rights agreement which provided for 225,000 additional shares to
be issued if the restricted stock was not registered within one year.
Following the rescission, the Company returned and signed over all shares of
QuinStone Industries it had received, and received back its 750,000 shares.
Additionally, and contemporaneously, James H. Dahl rescinded his agreement
with the Company whereby in exchange for his 81,700 shares of Killearn
Properties, Inc. stock he received 326,800 shares of Company stock. After the
rescission, the Company returned the 81,700 shares of KPI stock and received
back its 326,800 shares of Company stock.
Because of the rescission, no operations of QuinStone Industries are
reported in this Form 10-QSB. Additionally, the Company's interest in
Killearn Properties, Inc. has been reduced by 81,700, and the weighted number
of outstanding shares has been reduced accordingly to account for the return
of the above shares from the rescission of the QuinStone agreement and James
H. Dahl KPI agreement.
<TABLE>
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES (NOTE 1)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(000's except for outstanding shares)
<CAPTION>
December 31,
1996
<S> <C>
ASSETS:
Real estate inventories $ 37,442
Cash and equivalents 207
Property and equipment, net 1,380
Deferred income taxes 310
Other assets 221
Investments 3,197
Notes Receivable 5,132
___________
TOTAL ASSETS 47,889
=============
LIABILITIES AND STOCKHOLDERS' EQUITY:
Notes payable 24,444
Accounts payable and accrued expenses 914
Income taxes payable 1,070
Deferred revenue 1,462
Deferred compensation payable 410
Customer deposits 639
______________
Total Liabilities 28,937
Minority Interest 51
Stockholders' Equity:
Common stock - par value
$.04 per share; authorized
60,000,000 shares; issued
13,229,342 529
Paid-in capital 16,565
Retained earnings 1,807
____________
Total Stockholders' Equity 18,901
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 47,889
============
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
<TABLE>
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES (NOTE 1)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In 000's, except for earnings per share and outstanding shares)
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net sales $ 2,128 $ 6,292 $8,128 $ 13,623
Cost of sales 1,278 4,970 5,047 11,057
Selling, general
and administrative expenses 345 299 860 1,298
__________ _________ _______ ______
Income from operations 505 1,023 2,221 1,268
Other Income (deductions):
Interest (expense) (352) (389) (717) (1,316)
Other income, net 8 537 115 468
Minority Interest 20 0 (1) 0
__________ ________ ______ ________
Income from
continuing operations
before income taxes 181 1,171 1,618 420
Income tax expense 63 398 474 398
___________ _______ _______ ______
Net income $ 118 $ 773 $ 1,144 $ 22
========== ============ =========== ==========
Net income per common
and common equivalent
share - primary and
fully diluted $ .01 $ .07 $ .09 $ .002
=========== =========== =========== ==========
Adjusted shares outstanding
primary and fully diluted 13,229,342 10,739,405 13,229,342 10,739,405
Dividends Paid NONE NONE NONE NONE
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
<TABLE>
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) (In 000's)
<CAPTION>
Six months ended
December 31,
1996 1995
<S> <C> <C>
Net Cash provided by operating activities $ (938) $ 2,146
____________ ________
Cash Flows from Investing Activities:
Distribution from real estate ventures 32 0
Investment in real estate ventures (5) 0
Purchase of investments in equity securities (76) 0
Purchase of property and equipment (5) (1)
____________ _______
Net Cash used in investing activities ( 54) (1)
Cash Flows from Financing Activities:
Proceeds from exercise of stock warrants 1,119 0
Proceeds from issuance of notes payable 3,183 9,249
Repayments of amounts borrowed (3,257) (12,089)
____________ _________
Net Cash provided by (used by) financing
activities 1,045 ( 2,840)
_____________ _________
Net Increase (Decrease) in Cash
and Cash Equivalents 53 ( 695)
_____________ ____________
Cash and Cash Equivalents, Beginning of Period 154 988
_____________ ____________
Cash and Cash Equivalents, End of Period $ 207 $ 293
============ ============
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Form 10-QSB for the Three Months and Six Months Ended December 31, 1996
(1) Basis of Financial Presentation
On February 12, 1996, Proactive Technologies, Inc. ("PTE" or the
"Company") acquired 100% of the outstanding common stock of Capital First
Holdings, Inc. ("Capital First") in a reverse acquisition in which Capital
First's sole shareholder acquired voting control of the Company. The
acquisition was accomplished through the issuance of approximately 8,559,000
shares of PTE stock which represented approximately 80% of the voting stock of
PTE immediately after the transaction. For accounting purposes, the
acquisition has been treated as a recapitalization of Capital First with
Capital First as the acquiror. The historical financial statements prior to
February 12, 1996 are those of Capital First. As a result of the acquisition,
Capital First effectively changed its accounting year end to June 30 from
December 31. Capital First is a developer of residential subdivisions with
its principal operations in Tallahassee, Florida. Pro forma financial
information is not provided since the continuing operations Capital First
acquired from PTE (i.e., Keystone Laboratories, Inc.) are insignificant.
The accompanying unaudited consolidated financial statements and related
notes have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. The information furnished reflects,
in the opinion of management, all adjustments, consisting of normal recurring
accruals, necessary for a fair presentation of the results of the interim
period presented. The accompanying consolidated financial statements and
related notes should be read in conjunction with the audited financial
statements of Capital First Holdings, Inc., and notes thereto, as found in
Form 8-KA for the year ended December 31, 1995, and the Company's Form 10-KSB
for the six months ended June 30, 1996, and Form 10-QSB/A for the three months
ended September 30, 1996 (filed by EDGAR on February 12, 1997). A copy of such
consolidated financial statements and notes thereto may be obtained by
writing to the Company.
(2) Acquisitions
Effective August 12, 1996, the Company acquired all of the voting common
stock of Flowers Properties, Inc., Highland Properties, Construction Company,
Inc., and Barrier Dunes Development Corporation in exchange for approximately
2,565,000 shares of PTE common stock with a stated value of $3.50 per share.
The purchased corporations operations principally consist of land development
in Middle and South Georgia, and Cape San Blas, Florida. The land owned by
these corporations has been added to the land inventory of the Company. This
acquisition will be accounted for under the purchase method of accounting.
Effective September 16, 1996, the Company acquired eighty two per cent
(82%) of the issued and outstanding shares of QuinStone Industries, Inc. In
exchange for 750,000 shares of PTE voting common stock. Additionally, the
Company had agreed to file a registration statement within the next year in
order to register the shares issued under the agreement and was contingently
obligated to issue an additional 225,000 shares of restricted stock if this
registration did not occur. QuinStone Industries is a manufacturer of
synthetic stone and marble fixtures with a plant located in Quincy, Florida.
On November 16, 1996, this transaction was rescinded by the mutual
agreement of the Company and the entities/persons which the QuinStone
Industries stock was originally acquired, thus canceling any and all remaining
obligations to register shares under the original arrangement and terminating
any penalties should registration not occur. Simultaneous with this
rescission, the Company also transferred back 81,700 shares of Killearn
Properties, Inc. (AMEX:KPI) stock to James H. Dahl in exchange for the return
of 326,800 shares of Company stock which shares had been acquired during May
and August 1996 as explained below.
During April, 1996, the Company acquired for investment purposes
approximately 8.1% of the issued and outstanding shares of Killearn
Properties, Inc.(AMEX "KPI"). KPI is in the business of real estate
development in the Stockbridge, Georgia area. The Company filed its Schedule
13D regarding this event on April 25, 1996. In May 1996, PTE proposed a
transaction with KPI whereby KPI would exchange certain assets (consisting of
the golf course and country club, a newly constructed inn and certain joint
venture interests) to KPI's then Chairman of the Board and Chief Executive
Officer, for his approximate 42% ownership interest in KPI, or 551,321 shares
of KPI voting common stock. In connection with this proposed transaction, PTE
would be required to loan KPI $2 million dollars, which would be used to
facilitate the transfer of the assets. During August 1996, PTE acquired
approximately 85,950 additional shares of KPI stock, increasing its ownership
interest in KPI to approximately 22%. On July 29, 1996, PTE proposed to KPI's
Board of Directors that PTE be retained to provide sales personnel and sales
training techniques in order to improve the sales of residential lots. In
addition, PTE proposed that KPI's board include two additional representatives
of PTE. On July 31, 1996, KPI's Board of Directors approved the transaction
and the PTE proposals, and an agreement was entered into on August 2, 1996
between KPI and KPI's Chairman. The split-off transaction was voted upon and
approved at KPI's shareholders' meeting held on September 30, 1996. At the
Board meeting following the shareholders' meeting, Mark A. Conner was named
Chairman of the Board of KPI. Additionally, Mark A. Conner, President of the
Company, was elected to the KPI Board of Directors, and Langdon S. Flowers,
Jr., and Robert E. Maloney, Jr. were named as Directors of KPI. On November
1, 1996, J.T. Williams, Jr., President, resigned his position and the Borad of
Killearn Properties, Inc. (AMEX:KPI) named Mark A. Conner as President and
Chief Executive Officer. The transaction was completed on November 16, 1996,
at which time, PTE's holdings in KPI will be increased to approximately 25.6%.
(3) Debt
As a result of the Flowers acquisitions noted above, the Company assumed
notes payable in the aggregate approximate amount of $7,000,000, which are
secured by the land owned by the three Flowers entities.
Further, on December 6, 1996, the Company borrowed $600,000 to develop
Golden Eagle Phase VI; on October 28, 1996, the Company borrowed $170,000 from
lenders to finance the acquisition of some land between Tallahassee and
Havana, Florida, which the Company intends to develop. Lastly, on October 10,
1996, the Company borrowed $150,000 from lenders to finance the acquisition of
43.3 acres in Tallahassee, which the Company also intends to develop.
(4) Earnings Per Share
Primary and fully diluted earnings per share are calculated based on the
following number of weighted average shares of stock outstanding including
stock options as common stock equivalent. The weighted number of shares
outstanding for the period presented was 13,229,342. This number was achieved
after the return of both 750,000 shares of PTE stock to the Company for the
rescission of the QuinStone Industries transaction, and 326,800 shares of PTE
stock to the Company for the rescission of the purchase of 81,700 shares of
KPI stock to James H. Dahl.
PROACTIVE TECHNOLOGIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On February 12, 1996, Proactive Technologies, Inc. ("PTE")acquired 100%
of the outstanding common stock of Capital First Holdings, inc. ("Capital
First") in a reverse acquisition in which Capital First's sole shareholder
acquired voting control of the Company. For financial reporting purposes the
transaction is treated as the acquisition of PTE by Capital First.
Accordingly, the historical results of operations and financial position are
those of Capital First and include the accounts of PTE from February 12, 1996.
As a result of the acquisition, Capital First effectively changed its
accounting year end to June 30 from December 31.
Worldwide, a manufacturer of decorative concrete, became an 80% owned
subsidiary of the Company on February 10, 1996. On September 30, 1996, the
Company purchased 15% of the remaining Worldwide stock from Garat Oates,
bringing its ownership percentage to 95%. Included in this report is the
December 31, 1996 Balance Sheet of Worldwide and the results of operations
from October 1, 1996 to December 31, 1996.
QuinStone Industries, Inc., ("QuinStone") a manufacturer of synthetic
building products, became an 82% owned subsidiary of the Company on September
9, 1996. This transaction was rescinded, however, on November 16, 1996.
Consequently, the December 31, 1996 balance sheet of QuinStone and results of
operations from October 1, 1996 to December 31, 1996 are not included in this
report.
Results of Operations
Net sales decreased approximately $4,164,000, (66%) during the current
three month period and $5,495,000 (40.3%) during the current six month period
compared to the same period a year ago. The decrease in the current three
month period is due to the inclusion of $400,000 in condominium sales in the
three month period ending December 31, 1995 with no corresponding income in
the current three month period due to the completion of the project. Further,
real estate market conditions were generally down in the southeastern United
States, and specifically in the northern Florida, both in the first and second
quarter, resulting in a decline in overall general sales.
Cost of sales, as a percentage of sales, was 60.0% for the current three
month period and 78.9% for the same period a year ago. The cost of land sold
for the current six month period decreased to 62.1% as compared to 81.2% for
the same period a year ago. This increase in profit margin on net sales was
primarily due to the sale of commercial property during the first three months
of this fiscal year which had a gross profit margin of approximately 61%, as
well as several residential lots during the current quarter, both of which
contained an abnormally low basis. Profit margins between 19% and 24% are
expected to be maintained assuming no great fluctuations in the current
interest rates.
Selling, general, and administrative ("SG&A") expenses increased $46,000,
during the three months ended December 31, 1996 as compared to the three
months ended December 31, 1995. Management attributes this cost increase to
the addition of new salaried employees with the Company in sales and research.
SG&A decreased $438,000 for the six months ended December 31, 1996 as compared
to that same period one year ago, primarily due to an SG&A expense of
approximately $740,000 in the first quarter last year, which was attributable
to Golden Eagle Country Club, which is no longer a part of the Company.
Remaining SG&A was about 4% of sales. SG&A for the six months ended December
31, 1996 was about 10.6% of sales, fairly constant with necessary additional
professional and other administrative fees associated with being a public
corporation.
Interest expense decreased $37,000 or 9.5% for the three months ended
December 31, 1996 as compared to the three months ended December 31, 1995.
Interest expense for the six months ended December 31, 1996 decreased $599,000
over the same six month period in 1995, primarily due to the capitalization of
interest due to the development of the raw land inventory in accordance with
Financial Accounting Standards Board Statement 34 relating to interest.
Other income was down $529,000 for the three months ended December 31,
1996 compared to that same period in 1995. This decrease was primarily due to
a timber sale revenue of approximately $224,000, a gain of $130,000 during a
condominium sale involving the restructure of some Company debt, and several
smaller infrequent occurrences in 1995.
Liquidity
Management believes that the Company, through the generation of cash
flow from operations and the utilization of unused borrowing capacity, has
sufficient financial resources available to maintain its current operations
and provide for its current capital expenditure requirements.
The Company intends to concentrate its future efforts on expanding the
volume of business in Tallahassee and Vero Beach. The Company's investment in
Killearn Properties, Inc. will allow the Company to expand into the Atlanta
area. The Company is continuing to explore other possible acquisitions which
will complement its existing businesses, as well as to search out other areas
for residential and commercial development in other geographic areas.
Financial Condition
Total assets increased a net total of $19,423,000 from June 30, 1996 to
December 31, 1996; Real estate inventories increased $14,951,000 primarily due
to the Flowers acquisitions which brought $ 15,000,000 into the land
inventories. Notes receivable increased $4,015,000 from $1,117,000 at June
30, 1996 to $4,628,000 at December 31, 1996. The bulk of this increase is
due primarily the following factors: a $2,500,000 one year note from the sale
of the Piney Z commercial property; approximately $1,300,000 in notes
receivable for the issuance of stock pursuant to warrants to raise capital;
and approximately $800,000 was acquired as a part of the Flowers transaction.
Investments increased approximately $483,000 as a result of the acquisition of
additional shares of Killearn Properties, Inc. (AMEX:KPI), bringing its total
investment to 25.6% of the total issued and outstanding shares of KPI.
Total liabilities increased $7,006,000 from June 30, 1996 to December 31,
1996, primarily due to the following factors: The Flowers acquisitions brought
an additional $7,000,000 in notes payable to the books of the Company; a net
decrease of approximately $1,600,000 in notes payable as a result of payment
on overall debt; and deferred compensation payable decreased $149,000 to
$410,000 at December 31, 1996 from $559,000 at June 30, 1996 due to a
distribution.
Total Shareholders' equity increased $12,425,000 to $18,793,000 at
December 31, 1996 from $6,368,000 at June 30, 1996. The increase was due
primarily to the increase in paid in capital as a result of the issuance of
common stock upon exercise of warrants as well as the Flowers acquisition.
Management hopes to continue its residential development business in
Florida and Georgia state, and will continue to look explore other possible
acquisitions to complement its existing businesses.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
ITEM 4. Submission of Matters to a Vote of Security Holders
On February 12, 1996 in a Consent to Action in lieu of a special
meeting of shareholders of Proactive Technologies, Inc., the holders of a
majority of shares of voting stock agreed to elect the following directors of
the corporation: Mark A. Conner, Chairman of the Board, Joel C. Holt, and
Robert Maloney. The directors then elected Mark A. Conner President and Chief
Executive Officer of the Company.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits: None
(b) Reports on Form 8-K: None
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
PROACTIVE TECHNOLOGIES, INC.
(Registrant)
Date: March 17, 1997 By: /s/ Mark A. Conner
Mark A. Conner, President,
and Chief Executive Officer
EXHIBIT INDEX
Exhibit No. Description Page No.
27 Financial Data Schedule 16
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 206,532
<SECURITIES> 773,712
<RECEIVABLES> 5,132,000
<ALLOWANCES> 0
<INVENTORY> 37,441,628
<CURRENT-ASSETS> 42,857,510
<PP&E> 1,380,198
<DEPRECIATION> 0
<TOTAL-ASSETS> 47,889,000
<CURRENT-LIABILITIES> 2,263,000
<BONDS> 24,550,000
0
0
<COMMON> 644,000
<OTHER-SE> 18,149,000
<TOTAL-LIABILITY-AND-EQUITY> 47,889,000
<SALES> 2,128,477
<TOTAL-REVENUES> 2,136,645
<CGS> 1,278,988
<TOTAL-COSTS> 696,991
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 351,990
<INCOME-PRETAX> 180,666
<INCOME-TAX> 62,691
<INCOME-CONTINUING> 117,975
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 117,975
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
